Bank of Japan keeps interest rates unchanged at 0.5%

The Bank of Japan said Friday it would keep its main interest rate unchanged at 0.5%, as expected, with economists forecasting officials to announce a hike in the coming months.

However, the BoJ also said it would sell financial assets it had previously acquired to keep rates lower – including exchange-traded funds – marking a new phase of its monetary tightening policy.

"Japan's economic growth is likely to moderate, as trade and other policies in each jurisdiction lead to a slowdown in overseas economies and to a decline in domestic corporate profits," the BoJ said in a statement following the decision.

The announcement comes hours after government data showed inflation in the fourth-largest economy slowed to 2.7% in August partly because of government energy subsidies, with rice prices increasing 69% year-on-year.

The core inflation reading is still above the BoJ's target of two-percent inflation, and analysts have said the bank intends to hike the key rate later this year or in early 2026.